Consolidating balance sheet example
Sometimes, a founding family or other investor owns a big chunk of a company's stock.If this represents a meaningful amount of the ownership, it can be carried on the financial statements as minority interest.
Almost immediately, she offered to sell 90% of the privately held Nebraska Furniture Mart stock to Berkshire Hathaway for $55 million.Its gross annual sales exceeded $88.6 million and the company had no debt.After noticing how successful the furniture business was, fellow Omaha native Warren Buffett approached the owner, Rose Blumkin, and offered to buy the company from her.Photo Alto/Sigrid Olsson/Getty Images When analyzing a company's balance sheet, another item that warrants closer inspection is known as minority interest.The minority interest section refers to the equity of the minority shareholders in a company's subsidiaries, something that tends to occur for obvious reasons when dealing with holding companies.Put another way, minority interest represents the minority stockholders' share of the assets and liabilities of a subsidiary.
(A subsidiary is a company controlled by another company through ownership of at least a majority of the voting stock.)Beginning in the years 20, the Financial Accounting Standards Board (FASB) introduced a massive change to how minority interest was classified on the balance sheet by requiring companies to list minority interest under the shareholder equity section and not the liabilities section where it had previously found its home.
Perhaps the most famous holding company in the United States, if not the world, the investment vehicle of billionaire Warren Buffett has made minority interest a key strategic weapon in its never-ending quest for intelligent acquisitions.
Buffett will find an attractive business, often family-owned or controlled by a handful of people, and then offer to acquire at least 80% of the stock.
Since subsidiaries are controlled by their parent company, accounting rules allow for them to be carried on the parent company's balance sheet. That means that 10% of the current assets, inventory, property, plant, and equipment, and all the rest belonged to her.
When Berkshire Hathaway bought its 90% stake in Nebraska Furniture Mart, it was able to add the assets and liabilities (again, there were none of the latter due to Blumkin's philosophy of living debt-free) of the furniture giant to its own balance sheet. Berkshire Hathaway could now consolidate Nebraska Furniture Mart's balance sheet with its own balance sheet, but, technically, it didn't own all of Nebraska Furniture Mart. To adjust for this, Berkshire Hathaway had to calculate Rose's share of everything and put it under the minority interest section of the balance sheet.
Due to fights with her children and grandchildren, Rose leapt at the chance to sell the empire she had built from nothing.